–There’s no momentum here. Inventory accumulation was revised up from $86.0B to $116.5B, more than double the Q2 pace and unsustainable. Inventories will be a drag on Q4, and with no signs of a real improvement in final demand, so far,GDP growth is heading for a sub-2% reading. Inventories aside, consumption was revised down a tenth to 1.4%, fixed investment was lifted to 5.4% from 4.1%, and foreign trade was revised down in line with monthly data. –Ian Shepherdson, Pantheon Macroeconomics

–We now see Q4 GDP growth tracking at +1.0% instead of +1.5%, with inventories expected to subtract 0.8pp instead of 0.3pp. In addition to the inventory correction, Q4 will be hurt by temporary government shutdown disruptions, which will partly reverse in Q1, helping lift Q1 GDP growth we expect to +3.3%. So the annualized growth we now see over Q3 to Q1 is +2.6%. Inventory swings and shutdown disruptions distort what we expect will be an improving underlying trend in private demand through these three quarters that we expect will continue to support stronger trend growth through 2014 and 2015. –Ted Wieseman, Morgan Stanley

–Despite the dramatic acceleration in the pace of economic activity in Q3 (up from 2.5% in Q2 to 3.6%), the underlying tone of this report was quite weak as it reflects a slowing in consumption and fixed investment activity. Moreover, to the extent that the massive accumulation in inventory may have been involuntary, we are likely to see an unwind in inventory this quarter which will provide some downside risks to Q4 GDP performance. As such, we are looking for the pace of growth to slip to a sub-2.0% pace, mostly due to the unwind in inventories and the hit from the government shutdown. However, growth momentum should again pick up meaningfully in 2014, when we expect the recovery to begin the transition to a more sustained above-trend pace. –Millan Mulraine, TD Securities

–The upward revision to Q3 GDP was led by inventories, which made for weaker details. The pace of inventory building in Q3 is clearly unsustainable and there will have to be some slowing in coming quarters. However, at least some of the weakness is likely to be offset by stronger final sales. There is no sign in the ISM or employment data of any significant slowing in overall growth in Q4. –Jim O’Sullivan, High Frequency Economics

–Overall, the report still paints a picture of subdued underlying growth. The oversized inventory contribution in Q3 suggests we will see a massive drag from an inventory drawdown in Q4. Keeping our expectations for the level of inventory investment constant, we estimate that Q4 growth will be 0.7% q/q saar, down from our previous estimate of 1.5%. –Yelena Shulyatyeva, BNP Paribas

–This balance of growth – with very strong inventory accumulation but mediocre domestic demand growth – is unlikely to persuade policymakers that the economy is on a significantly firmer footing. Indeed, a reversal of some of the stock building is likely in Q4, although we expect domestic demand growth, particularly consumption, to be somewhat stronger as the impact of fiscal tightening fades. On this front, the backdrop for the household sector looks rosier following this report, with real disposable income growth revised up to 2.9% from 2.5% in Q3, and to 4.1% from 3.5% in Q2. This was also reflected in the savings rate, which was revised three-tenths higher in Q3, to 5.0%. –Peter Newland, Barclays

–The third quarter GDP revision also looks robust but is less than meets the eye. The headline figure was boosted from 2.8% to 3.6%, well above expectations, but the surprise came exclusively in inventory accumulation, which was pumped up from an initial estimate of $86 billion (already quite high) to a whopping $116.5 billion, the fastest buildup of stocks since the first quarter of 1998. Real final sales were actually revised down by a tenth from 2.0% to 1.9% and real final domestic demand was nudged up by a tenth to 1.8%. Thus, the core piece of the economy remained on the metronome-like 2% growth clip, but inventories pushed the headline figure to almost double that. Unfortunately, what goes up must come down. If inventory accumulation simply returns to the pace seen in Q2, which in my view is probably the best we can hope for, Q4 GDP will be close to flat. –Stephen Stanley, Pierpont Securities

–The upward revision to GDP growth in the third quarter is not all good news. Inventories accounted for almost half (1.7 percentage points) of growth, and businesses likely will cut back on investment in inventories in late 2013 and early 2014, weighing on near-term growth. Still, the economy did have some momentum heading into the government shutdown, and will continue to expand in 2014. With less fiscal drag, a better global economy, continued gains in consumer spending, a pickup in business investment, and the ongoing recovery in the housing market, growth in 2014 will be around 2.5 percent, noticeably stronger than the 1.7 percent pace this year. –Gus Faucher, PNC Financial Services

–The upward revision to third-quarter GDP growth to 3.6% annualized, from the initial 2.8% estimate, certainly adds to the evidence that the recovery is gaining momentum. At the margin, it points to an earlier QE taper by the Fed. Together with the 2.5% gain in the second quarter, that means the economy has been growing at above its potential pace, between 2.0% and 2.5%, for six months now. With the fiscal drag still fading and the survey-based activity indicators trending higher, there is every reason to expect that this stronger economic growth will be sustained next year. –Paul Ashworth, Capital Economics

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